Self Storage May Struggle

As Fewer Americans Move

By Leah Etling on Mar 7, 2024 in Matrix

The latest Yardi Matrix Self Storage webinar provided insights into the current state of the economy and its impact on the self-storage industry. Find a full recording of the March 6 webinar here and view the presentation deck here.

The self storage sector began seeing weaker performance in 2023 due to a decline in demand, primarily caused by low home sales (due to high interest rates) and subsequent reduced mobility nationwide. There has been a 25 percent reduction in state-to-state migration compared to 2021 and 2022.

Consequentially, self storage revenue growth was nearly flat last year, driven by declining occupancy and decelerating street rent growth.  Find the most recent monthly report on the self storage sector from Yardi Matrix. A near term expansion in self storage supply is forecast, while the coming years are expected to show an overall inventory decrease.

Jeff Adler, vice president of Yardi Matrix, mentioned new rental strategies employed by REITS that keep street rents low and quickly moving vacant spaces, impacting same-store rent growth negatively. Despite construction and completions remaining steady, same-store rent growth was -3 percent in January.

Adler discussed the current state of the market, highlighting that occupancy and rent increases during the pandemic pushed same-store sales revenues up by 37 percent. However, same-store occupancies have now declined to pre-COVID levels, hovering around 90 percent, and the decline in street rents is affecting overall revenues.

Matrix analysts believe that that the sector may not see a significant performance improvement until home sales recover, expected in late 2024 or early 2025.

“I think an improvement really doesn’t happen until home sales happen, which means the for-sale market opens up and that means (lower) interest rates, and that’s later in 2024, maybe early 25,” Adler said.

However, potential opportunities in self storage are not unheard of. Locations where supply pressures were putting downward pressure on street rents, such as Orlando, Tampa, and Atlanta. Markets that experienced declining supply over the past few years, like New York, Denver, and Minneapolis, are considered to be on the mend.

“These are places that really were hit hard a few years ago. But supply is waning. So they’re the first to kind of bounce, and I would say there are opportunities for stressed or distressed properties, you know, acquired in 2021 and 22 or developed in 2023,” Adler said.

Gain more insight on the state of the economy as a whole and projections for the housing market by listening to the webinar recording.